Coarse graining correlation matrices according to macrostructures: Financial markets as a paradigm
Statistical Finance
2024-06-27 v2 Data Analysis, Statistics and Probability
Applications
Abstract
We analyze correlation structures in financial markets by coarse graining the Pearson correlation matrices according to market sectors to obtain Guhr matrices using Guhr's correlation method according to Ref. [P. Rinn {\it et. al.}, Europhysics Letters 110, 68003 (2015)]. We compare the results for the evolution of market states and the corresponding transition matrices with those obtained using Pearson correlation matrices. The behavior of market states is found to be similar for both the coarse grained and Pearson matrices. However, the number of relevant variables is reduced by orders of magnitude.
Keywords
Cite
@article{arxiv.2402.05364,
title = {Coarse graining correlation matrices according to macrostructures: Financial markets as a paradigm},
author = {M. Mijaíl Martínez-Ramos and Parisa Majari and Andres R. Cruz-Hernández and Hirdesh K. Pharasi and Manan Vyas},
journal= {arXiv preprint arXiv:2402.05364},
year = {2024}
}
Comments
15 pages, 16 figures, version as accepted for publication in Physica Scripta (2024)